The size premium, historically
Small-cap stocks have, over very long horizons, outperformed large-caps — the "size premium" identified by academic research in the 1980s. But the premium has been inconsistent decade to decade, and the 2010s were notably unkind to it.
What changed in the last decade
A handful of mega-cap technology companies drove an outsized share of large-cap index returns, distorting the usual size-return relationship. Small-caps also carry more sensitivity to financing costs, which hurt during the higher-rate environment.
The allocation takeaway
A modest small-cap tilt remains a reasonable diversification choice, not a guaranteed outperformance bet — treat it as a risk factor, not a certainty.
